Mr. Handelsman

Finance & Investment

Four Steps to Maximize the Price When You Sell Your Hotel Business

By Mike Handelsman, Group General Manager, BizBuySell.com

For the hotel owners who may be ready to sell their businesses, the past few years have been a time to cut costs, make ends meet and await an economic recovery. There simply was no use in trying to sell the business when company revenues and profits were down and qualified optimistic buyers were hard to find. Low purchase-price valuations only made matters worse.

With the threat of a double-dip recession notwithstanding, 2011 has seen an improvement in the business-for-sale market and many experts expect continued, gradual, recovery in 2012. Financing options are improving for buyers and banks are putting a new focus on lending.

With optimism creeping back into the national economy, this may be the year in which you’re planning to sell your hotel. In a recovery, selling your hotel can be a complex, confusing process. With that in mind, here are four simple tips to maximize your hotel’s selling price:

1. Maintain, maintain, maintain

Business buyers are typically very savvy and will do their research before signing anything. That means it's important for sellers to be ready to demonstrate their business is worth the asking price. Your financial records need to be kept tidy, organized and easily interpretable. A good practice is to keep at least three years of documentation, including tax returns and expense records. A greater level of transparency will establish an important foundation of trust with the potential buyer.

In addition, be sure to resolve any outstanding business “loose ends.” These could be short-term key vendor agreements, over-reliance on one or a few key customers and any pending legal or labor/employee issues. Loose ends that are left out could harm the relationship with the potential buyer. Again, full transparency will ensure buyer goodwill at the outset.

Customer, employee and vendor relationships should also be cared for, even when your hotel is on the market. Paying your bills on time and maintaining excellent customer service will help the sale of your business in the long run, as you’ll have set the following owner up for success. Relationships are important in selling your business, they’re also important in maintaining it for the next owner – don’t pass on a recent history of disgruntled employees, customers and vendors.

The business should be well-maintained physically as well. Take care of any building improvements such as painting the property, tidying up the grounds or updating the lobby or guest rooms. Obviously, if the fundamentals of the business aren’t sound, no cosmetic improvements can cover them up, but the physical appearance of your business is often the first impression a potential buyer gets.

2. Understand the Market

An evaluation of the marketplace is essential in properly gauging the value of your hotel. To accurately calibrate the asking price, establish how your property compares with others in the market. While tempting, overpricing your business can result in a long and difficult sale process, while undervaluing the business will leave money on the table. Expect quality properties to fetch better prices in 2012, but don't make the mistake of asking for pre-recessionary prices.

To determine the right price, find out what comparable hotels have sold for or listed for recently. Websites like BizBuySell.com and BizQuest.com allow you to search for similar listings based on variables such as location, industry and size. You can also commission a valuation from a professional (business broker or accountant) to review in-depth statistics on local deals.

Also, carefully gauge the overall health of the national economy, as well as the local one. Upticks in tourism or business travelers could put your local market on a more sound footing than the economy as a whole. However, don’t discount the general economic climate when determining how to price your business. In a down economy, the hard truth is that even if you’re local market is doing well, you’ll likely fetch less for your business, no matter how successfully you’ve navigated the recession.

Finally, be honest with yourself about your hotel’s financials – don’t gloss over some bad months or years. If your revenue and cash flow have dropped a bit, take that into consideration. Buyers certainly will. Don't think they'll pay you for your business’ performance before the downturn. Your ultimate goal should be to set a price that attracts the greatest number of serious buyers, which will in turn give you the best chance of closing a deal at the highest possible price.

3. Spread the Word

An accomplished business broker can help you get ahead of the competition and draw in more prospective buyers. Before you choose a broker, make sure to find outside references other than those he or she provides. Specifically find out if the broker has experience selling hotels similar to yours. This will ensure you’re using a qualified expert that can spread the word to a large group of interested candidates. Also, ask the broker to present you with their plans for confidentially marketing your property in advance of signing any agreement to ensure they have a sound plan to attract the maximum number of potential buyers.

If you choose to sell on your own, put together an aggressive marketing plan. This should include getting your listing posted online, in the local newspapers and hotel/motel trade publications. You should also leverage your personal and professional networks. Friends, family and business contacts can help advertise the sale to their networks as well.

Also, if you haven’t done so already, consider connecting with your local Chamber of Commerce. Chambers serve as hubs for local entrepreneurs and business-minded citizens. There may well be interested buyers who are already members. Even if there aren’t, connections made through the Chamber can greatly expand your personal network. They’ll likely help you in any way they can, as they’ll want to make sure your hotel remains a healthy and important part of the local economy.

Finally, whether you are employing a business broker or not, you shouldn’t discount social media as a way to broadcast your message. It’s a free, scalable source of information that others can easily spread and share. Twitter, Facebook and LinkedIn are just the three largest examples of a medium that provides an attractive venue to get the message out that your hotel is for sale.

4. Expect to Offer Financing

In today's challenging market, offering to finance a portion of the selling price is a must. While lending from local and national banks will continue to loosen in 2012, banks are still almost universally requiring that seller financing be part of any deal they fund. Most likely that means you will be required to take a minimum of 20 percent of the sale price in the form of a note from the buyer that will be paid back over time (usually 3-5 years), with interest. This also means that you, as the seller, have an investment in the hotel even after the sale is completed. In most situations, you will be expected to help in the transition of the property to the new owner. This will ensure that the new owner gets off to a strong start and the hotel remains successful for many years to come.

This runs full-circle with the first tip — that your business should be well-maintained at the time of sale. Your investment in your hotel doesn’t usually end with the sale. While you may be free of the day-to-day operations, you’ll likely be a stakeholder for years to come. With that expectation, it should be clear that your hotel must be primed to continue profiting, ensuring a nice return on your investment in the new buyer.

Mike Handelsman is Group General Manager for BizBuySell.com and BizQuest.com, the Internet's two largest and most heavily trafficked business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses and include two of the industry's leading franchise directories. Since 1995, BizBuySell and BizQuest have offered tools that make it easy for business owners and brokers to sell a business and for potential buyers to find the perfect business. Together, BizBuySell and BizQuest list more than 75,000 businesses for sale at any time and have over 850,000 monthly visits. Mr. Handelsman can be contacted at 415-284-4390 or mhandelsman@BizBuySell.com Extended Bio...

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